2011 Financial Market Review
14th January 2012
While the fourth quarter of 2011 was quite strong for stocks, it was not strong enough to make up for a terrible third quarter. Large Cap Stocks, represented by the Standard and Poor’s 500 Index were up all of 2.1% for the year, helping the overall market finish the year with 1.0% gain, as Mid Cap Stocks were down 1.7% and Small Cap stocks fell 2.9%. Looking at the view from the top, the final statistics would lead one to believe that it was a rather uneventful year in the financial markets. In reality, nothing could be further from the truth. Volatility was up significantly this year, in particular over the summer when the Debt Crisis in Europe stole the headlines. As far as the stock market was concerned, a few signs of an improving economy in the United States were not enough to make up for the bad news from overseas.
The best place to be invested in 2011 was actually Long Term Treasury Bonds which gained a whopping 30% in 2011. These government securities were buoyed far more by the flight to quality by investors than governmental efforts to keep interest rates low across the globe. TIPS gained 13.6% for the year, even with rather low inflation during the year. This was certainly due to an expectation of significant inflation once that once the economies of the world start to pick up steam. Interestingly, REITS actually had a nice year, as these securities gained 8.5% in anticipation of a recovery in the housing market. From a style perspective, Large Cap Growth fared the best this year, while Small Cap Value was on the wrong end of the investment performance curve.
On the other side of the spectrum, it was a difficult time to be invested overseas, thanks to a continuing stream of disturbing headlines from Europe. Not only did this take down international financial markets, the impact was even worse for US investors thanks to the rise in the Dollar sparked by a flight to quality. Developed countries were down 12.1% in 2011, while Emerging Market Equities took an even bigger hit by falling 18.4% in 2011.
Investment Returns December 2011